WEAKNESSES

RISK ASSESSMENT

Economy set to remain in recession on the back of tight policy

Despite a strong improvement in GDP in 2017, the rebound was not sustained in 2018. The negative spillover effects of the worst drought in 50 years began to take a toll on agricultural activity in March 2018. Then, at the end of April, the country was hit by a change in foreign investors’ mood towards emerging markets, which led to a long and massive sell-off of the peso during the following months. This latter move raised inflation pressures, leading the central bank to strongly raise interest rates. Moreover, the government had to speed up the pace of fiscal consolidation as part of its agreement with the IMF. These events had a clear impact on domestic demand, which manifested as a sharp decline in household consumption and in investments.

In 2019, the recovery of agricultural activity and a stabilising macroeconomic environment marked by some improvement in inflation (allowing the central bank to somewhat cut policy rates) should contribute to a relatively better economic performance. Exports should register stronger growth, driven by primary goods (thanks to a good crop) and stronger manufacturing exports to Brazil. Nonetheless, it is unlikely to sufficiently protect Argentina from a second consecutive year of recession, as domestic demand will remain weak due to still tight monetary and fiscal policies. Downside risks to this scenario are related to a possible new escalation in investors’ fears towards emerging markets and to the domestic political landscape. Unfavourable market dynamics could arise, if there is a perception that the commitment with the IMF plan could be jeopardized after presidential elections.

Large twin deficits that triggered the currency crisis are expected to narrow

The economic recovery of 2017 raised the imbalance in current account as imports started to increase at a much faster pace than exports. This became particularly evident in 2018, when foreign sales figures started to be impacted by the weakening in agriculture exports. In parallel, the government took advantage of the then-abundant international liquidity to finance its large fiscal deficit. These two fundamentals were decisive for the run on the peso currency triggered in April 2018. The latter was only contained after the IMF approved the recalibration of Argentina's stand-by arrangement, bringing its total amount to USD 57 billion in end September 2018 (from the USD 50 billion agreed in July 2018). At that time, changes in economic policies were announced, such as the substitution of inflation targets by a monetary base target (set at zero growth from October 2018 to June 2019) and an exchange rate policy creating a non-intervention zone (ARS 34-44/USD).

The large twin deficits are expected to narrow in 2019. From the foreign account perspective, the decline in imports (due to the currency depreciation and weak internal demand) and the recovery of agricultural exports will contribute to reduce the imbalance in current account. On the fiscal front, the government is expected to deliver the challenging zero primary fiscal balance (before interest payments) set for this year. The bulk of this adjustment will come from the temporary re-introduction of export taxes (2019/20). In addition, policymakers also agreed to cut public investments by 80% in real terms as well as subsidies.

President Macri will struggle to be re-elected in October 2019

Pro-business President Mauricio Macri of the centre-right Cambiemos coalition faced a perfect storm in 2018, as Argentina started to face the headwinds of a more challenging global environment. While the economic reform plan aims to protect the most vulnerable people (i.e. through expanding the coverage of the government universal child allowances and of health plans for lower income), the episode was clearly not without consequences for Mr Macri’s popularity. Moreover, his Cambiemos coalition does not hold a majority in Congress (108 out of 257 seats in the Lower House; 25/72 in the Senate). However, in mid-November 2018, the government was able to get the 2019 budget approved in Congress, which targets a zero primary deficit for the year. The approval also gave a signal to both investors and the IMF that the administration is committed to steep spending cuts. Mr Marci will run for re-election in 2019, when one third of the Senate and half of the Lower House will also be renewed. The ruling party task will however not be easy, as activity will further shrink. To Mr Macri’s benefit, however, no opposition leader has so far been able to capitalize on this hardship. Indeed, his main opponent, former President Cristina Kirchner, is now facing a battery of corruption allegations. However, the apparition of a credible moderate Peronist candidate could represent a risk to President Macri’s plans.

Last update: February 2019

Payment

The most common payment instruments in local commercial transactions are:

cash (for low-value retail transactions);

bank transfers;

cheques (ordinary cheques, deferred payment cheques or other types).

In case of default, these cheques represent an executable legal document which facilitates a fast track legal proceeding.

For international commercial transactions, the most common payment instrument is Bank transfer via SWIFT. Currently there are no restrictions on foreign exchange and fund transfers from Argentina.

Debt Collection

Amicable phase

Out-of-court settlement negotiations are focused on the payment of the principal, plus any contractual default interest that may be added. Argentine regulations provide alternative dispute resolution methods, such as mediation, which is mandatory prior to commencement of any judicial process. At this stage, it is advised to obtain a notarised acknowledgement of debt signed by the debtor, or notarized payment plan agreement signed by both parties. Under amicable negotiation fees payable only apply to recoveries obtained.

Legal proceedings

Argentina is a federal republic with 24 independent judicial systems and national judicial system. The highest court in the country is the National Supreme Court.

Regarding debtors abroad, Argentine courts only have jurisdiction when debtors have assets in Argentina (in which case insolvency proceedings will only involve such assets) or when their principal place of business is in Argentina.

The Argentine Civil and Commercial Code classifies proceedings into two types: ordinary proceedings (juicio ordinario) and executory or fast-track proceedings (juicio ejecutivo). Ordinary proceedings usually last between one and four years. If applicable, an appeal may be filed for the Court of Appeals to hear the case.

Executory processes are simplified and prompt proceedings that mainly consist of claimants’ request for the execution of debtors’ assets to obtain payment of a debt. They apply when creditor has documents known as enforceable instruments (titulos ejecutivos), such as public instruments, private instruments signed by the concerned party (debtor or guarantor) and legally acknowledged, bills of exchange, checks or credit invoices. Contrary to ordinary proceedings, it is not necessary to provide proof of the debt. The judgment is delivered between approximately six months and two years.

Costs include a court tax (3% of the amount in dispute to be paid by claimants upon commencing proceedings), and lawyers’ fees. The prevailing party is entitled to recover its costs, including attorneys’ fees (subject to court approval).

All documents (original or notarised copies) submitted to the court must be (i) apostilled (for member countries of the 1961 Hague convention, which includes Argentina), and (ii) authenticated by the Argentine consulate in the issuing country. All non-Spanish documents must be translated by a certified translator registered in Argentina.

Enforcement of a Legal Decision

For local judgments, final decisions are initially considered enforceable. However, if a decision has been appealed, it can be partially enforceable in relation to the part of the judgment that is final. In principle, any of the debtor’s assets can be seized (including but not limited to property, trademarks, and accounts receivable from third parties and shares).

Insolvency Proceedings

There are three insolvency proceedings:

Out-of court reorganization

Acuerdo preventivo extrajudicial (APE) is a proceeding in which the debtor and a majority of unsecured creditors enter into a restructuring agreement. This agreement must be submitted by the debtor to an Argentine court for it to become enforceable. In practice, out-of-court agreements provide a series of conditions that must be complied with, including a minimum threshold of consenting creditors.

Reorganization

Concurso preventivo is a reorganisation proceeding that can be initiated voluntarily by an individual or entity, who must submit proof of their inability to pay their debts. Debtors must file a petition to the court requesting relief under bankruptcy law. The court will appoint a trustee. All creditors must file evidence of their proof of claim with the trustee (verificación de créditos). Debtors must submit a proposal for reorganization and must obtain creditors’ approval during an “exclusive period” of 90 days, with the possibility of an extension. If the proposal is approved by the majority, the judge reviews the terms of the plan prior to approving it. Upon homologation by the court, the reorganization plan becomes effective to all unsecured creditors (even those who have not agreed to it). A special payment offer can only be proposed and approved for secured creditors. If the proposal is not approved by the required majority (51%), debtor bankruptcy may follow. The process generally takes between one and two years, depending on the volume and nature of debt being renegotiated and the size of the debtor.

Bankruptcy

Quiebra is initiated when a reorganization proceeding fails, either voluntarily (by the debtor) or involuntarily (by the debtor’s creditors’ request). The petitioner must show that the company is insolvent or that it has entered into a “suspension of payments” status. In case of an involuntary bankruptcy, after the petition has been filed with the relevant court and all necessary evidence is presented, the court will summon the debtor to provide an explanation of the reasons why payments of the obligations in favour of the petitioning creditor have not been made and to prove that the debtor is solvent. If the debtor is unable to do so, the court will declare the debtor bankrupt. Unlike reorganization, bankrupt debtors lose control of the administration of their assets. A trustee is appointed in order to preserve and administer the debtor’s property. As a result, all payments to creditors and debtor must be made through court. All claims and proceedings against the debtor are automatically stayed as from the date of the order that determines debtor’s bankruptcy. All creditors must submit their proof of claims for payment. Once the assets available and the amounts owned to each creditor are determined, the trustee liquidates the assets and proceeds with the distribution of repayment to creditors.